Argentina Peso Peron 2012
Argentina's President Cristina Fernandez de Kirchner unveils a large scale bill of the new 100 pesos bank note with a portrait of former First Lady Eva Peron to commemorate Thursday's 60th anniversary of Eva's death, during a ceremony at the Casa Rosada Presidential Palace in Buenos Aires. Reuters

After a decade-long love affair with emerging markets, investors turned to "frontier markets" as the latest in investment chic, pinpointing markets where both risks and rewards were substantial.

But recent troubles in Argentina, once a common example of a promising frontier market, may make frontier market specialists rethink their strategies.

“Argentina typifies the risks that loom for investors in frontier markets. There has been a growing perception the last few years that frontier markets are 'guaranteed winners.' Nothing could be further from the truth,” wrote frontier markets expert and former Citigroup equity director Allan Dwyer in an email to IBTimes.

“This is a very risky asset sub-class and Argentina proves the point,” he added.

Frontier markets are sometimes called “emerging emerging markets,” and are characterized by high-growth potential but immature and illiquid markets. Risky politics there contrast with low labor costs and abundant natural resources. Examples include Nigeria, Kenya, Jordan, Pakistan and Vietnam, commonly included in frontier market indices.

Earlier this year, Argentina’s peso currency depreciated the most in more than a decade. The country suffers from severe inflation, a black market for foreign exchange, capital flight, dwindling foreign reserves and a new current account deficit, among other problems.

Its central bank has intervened to stabilize exchange rates, spending hundreds of millions. Political leaders have accused foreign media and businesses of deliberately undermining the Argentinian economy, according to the Wall Street Journal.

Still, some frontier market specialists are sticking to their guns. They point out that uncertain markets and dismayed investors offer the best buying opportunities.

“Despite the serious problems currently facing the country, investors are not going to flee in disarray,” Tomas Guerrero, a frontier markets specialist at Spain’s ESADE Business School, told IBTimes.

Argentina’s benchmark Merval stock index has actually gained 9 percent for the year to date, and has appreciated by more than 82 percent in the past year. Guerrero underlined those gains as significant.

“The Merval 25 [at 5,900 points] is much better than in June of last year, when it fell below 3,000 points,” he said. Investors could be jockeying into position, ready for a potential change of government in 2015 that could turn Argentina around, Guerrero said.

Recent discoveries of shale energy deposits in northern Patagonia also bode well, he added.

Wall Street analysts and other investment advisers are not as easily convinced, though.

UBS AG (VTX:UBSN) analyst Rafael de la Fuente points out in a recent note that Argentina’s oil and gas production is actually declining. Argentina’s recent swing from a current account surplus to a deficit has also upended a long established economic model, he said.

“Without an orthodox approach to curbing inflation, Argentina is indeed heading downhill without brakes,” he wrote on Jan. 29. “What is needed is a radical change in policy direction that right now is sorely missing.”

Jay Pelosky, a principal with J2Z Advisory LLC, also called Argentina a “mismanaged” emerging market, and paired it with Venezuela.

Economic troubles have been brewing in Argentina for years, Pelosky told IBTimes.

“Argentina has really had a real issue with their domestic internal economy, with inflation and the value of the currency,” said Pelosky, who has worked in Latin American equities for 24 years.

He said there was a “reasonably high likelihood” that Argentina would turn to the IMF for financial support within the next two quarters, a move that could spark a similar request from Turkey, which would deeply unnerve investors. Pelosky’s asset allocation and portfolio strategy consultancy has more than $3 billion under advisement.

As turmoil in Argentina unfolds, other frontier market analysts look to alternative markets, such as Nigeria and Vietnam.

Global X Next Emerging and Frontier fund analyst Jay Jacobs is bullish on Vietnam, for instance. Strong projected economic growth of 5.8 percent and strong 2013 exports make for an attractive investment case, he said.

Similarly, almost two thirds of Nigeria’s population are under 25 and due to enter the workforce shortly, which could pay “demographic dividends,” according to Jacobs.

Jacobs isn’t bullish on frontier markets as a whole, but says they make sense as an investment proposition.

“They’re not correlated to the developed markets, so they can provide diversification,” he told IBTimes. “Demographically, they look very appealing.”

There’s been “strong interest” in frontier markets, said Jacobs, whose research informs Global X emerging and frontier market funds worth $570 million.

Partly thanks to that interest, regulators have started paying attention, too.

Independent securities regulator FINRA has made the marketing of frontier markets a priority for 2014. The group highlighted “serious geopolitical risks,” less liquid markets and low investor protection standards in its annual letter in early January.

Nonetheless, many investors have piled into frontier markets, where returns significantly beat emerging markets last year. That includes institutional investors and retail investors.

As for Argentina: “It has become in the last year one of the most attractive destinations for investors,” wrote Guerrero to IBTimes, citing the “extremely low price of assets and a climate of widespread pessimism.”

“Investors are anticipating a sea change,” he said.